Editorial: NovaGold suit dismissed

Apart from Southwestern Resources’ Boka troubles, which we deal with separately opposite to this, the week ended July 21, the 29th week of 2007, saw a court decision that was sensible, an environmental incident that was sensitive, and an armed robbery that was sensational.

* A United States Federal Court in Alaska dismissed the lawsuit filed by NovaGold Resources against Barrick Gold over development of the Donlin Creek gold deposit. NovaGold had filed the suit, claiming breach of contract and breach of fiduciary duty, and alleging false disclosure by Barrick.

The dispute stems from the agreement between NovaGold and Placer Dome, whose obligations Barrick inherited when it took over Placer Dome in 2006. The agreement has a timeline requiring Barrick to make good on work commitments including an environmental impact statement, a final feasibility study, and a production decision, by Nov. 12, in order to exercise a back-in right at the project. NovaGold, in effect, was arguing that Barrick had already taken too long to start on these obligations and had no way of meeting them by the November deadline.

NovaGold launched the suit in the middle of Barrick’s ultimately unsuccessful takeover bid for NovaGold in August 2006. From Barrick’s point of view, the suit was another delaying tactic by a board seeking to thwart a takeover. From NovaGold’s, Barrick’s takeover offer was meant to nullify the problem of the November deadline.

What the court ruled — sensibly, in our view — was that it had no business predicting the future. It said that Barrick can either perform, fail to perform, or elect not to perform, its obligations, and only on the deadline could its compliance with the contract be measured. And at that point, NovaGold would simply retain its interest in the project undiluted if Barrick had not met the commitments.

There are lessons here, and not just in the mischief lawyers can get up to when they’re invited to. A set of explicit project milestones might have saved a lot of legal bills here.

And a little more simply, we can dig out a 1986 issue of Northern Miner Magazine for some common sense from the dean of mining law, Karl Harries. When you see the phrase “time shall be of the essence of this agreement,” it means just what it says: that what must be done, must also be done by the deadline dates. That also works in reverse, as the federal court pointed out.

* Cameco is facing the possibility of a difficult environmental cleanup at its Port Hope, Ont., uranium-hexafluoride plant, where underground contamination has been discovered in an indoor excavation. Not everything in the spill has been identified, although it is known to contain uranium; as well, the extent of the spill is still unknown, since it is under a concrete building floor.

A monitoring well network that rings the plant has not detected any contaminant plume in the groundwater, so the spill has not reached the point where it is a danger to water users or to nearby watercourses (the plant is only 200 metres from Lake Ontario).

Cameco officials have not blamed “legacy” contamination from the old days of the Port Hope refinery. That in itself underscores the importance of careful environmental stewardship. It is not enough to point at the bad old days without making sure the good new days stay good.

* Sierra Minerals reported that armed robbers had struck its Cerro Colorado gold mine in Sonora state, Mexico, twice in six weeks. The stolen gold amounts to four weeks of production from the mine, which produces about 18,000 oz. annually.

Two half-million-dollar robberies are not small stuff for a junior gold producer, although, curiously, it hasn’t taken a hit on the market for the losses.

The robberies seem to have been timed to hit the mill vault just when it was at its fullest — a few hours before a gold shipment went out. Security staff at gold mines tend to be well armed (and we recall meeting a couple of retired Gurkha Riflemen no armed robber should want to confront).

Sierra is reviewing its security procedures, as well it might. If we were Lady Bracknell, we’d say two robberies in six weeks looks like carelessness.